Many of the ministry requests for their piece of the fiscal 2020 budget submitted at the end of August are all-time highs.
The Finance Ministry on Thursday announced that general account budget requests from government agencies and ministries came to a record-setting ¥104.99 trillion. Behind this figure are mounting social security costs and increased spending on defense. It was also the sixth straight year that the budget requests have topped ¥100 trillion.
In addition, a special request quota will be set up for economic stimulus measures to ease the possible negative impact from the consumption tax hike in October to 10 percent from the current 8 percent. If these figures are added, the initial budget for fiscal 2020, which will be finalized for Cabinet approval in December, is expected to surpass the 2019 initial budget of ¥101.4 trillion. Japan’s fiscal health is in dire straits, but these record high requests do not show any sense of crisis by the government.
Let’s take a look at the revenue side. Tax revenue in fiscal 2018 came in at a record ¥60.4 trillion, slightly higher than the ¥60.1 trillion marked in fiscal 1990 when Japan was enjoying the “bubble economy.” Though this is a good sign, the reality is that the amount accounted for only 60 percent of government expenditures, and the rest had to be covered by government debt.
According to the Finance Ministry, the outstanding government bond issuance is expected to reach about ¥897 trillion by the end of the current fiscal year, and paying back this amount with tax revenue will take 14 years. If the figure is translated into per capita basis, each person in Japan will have to shoulder about ¥7.13 million. If this was an ordinary household, the family would certainly end up going bankrupt.
Long-term debts owed by the national and local governments is meanwhile expected to hit ¥1.122 quadrillion at the end of fiscal 2019.
Data from the International Monetary Fund show that Japan’s rate of government debt stands at 237.5 percent of GDP in 2019, which ranks as the worst among the Group of Seven industrialized nations. It is followed by Italy’s 133.4 percent, 106.7 percent for the United States and 99.2 percent for France. Given that Japan’s debt was only 64.3 percent of GDP back in 1990, the pace of debt increase has been outrageously fast. One may wonder who will be held responsible for the snowballing debt.
And the situation will even be worse in the near future. Japan’s social welfare costs are expected to surge, especially starting in 2022 when many postwar baby-boomers will turn 75 years old or older.
Given the colossal social welfare costs, the Health, Labor and Welfare Ministry is seeking a record ¥32.62 trillion for fiscal 2020, including ¥12.1 trillion for running the public pension system and ¥3.3 trillion for elder care. Under the request, the ministry estimated the natural cost increase due to the aging of society at ¥530 billion.
As for the defense budget, the Defense Ministry is requesting an all-time high of ¥5.32 trillion for the eighth consecutive year of increase. The request includes the introduction cost of ¥12.2 billion for U.S.-developed Aegis Ashore land-based missile interceptor systems.
Meanwhile, the budget must cope with imminent social needs. In that sense, measures to prevent child abuse and reduce schoolteachers’ long work hours must receive adequate funding. In recent years, teachers’ workloads have been on the rise because they have to take care of extracurricular activities and other administrative tasks. We can’t ignore the fact that more than 5,000 teachers every year take a leave of absence to cope with depression or other psychological problems. The government should provide a helping hand to those teachers to ease their burden and the education ministry, to address this issue, has requested ¥16.3 billion for extra staffing in schools.
Moving forward, the budget requests by ministries and agencies will be scrutinized by the Finance Ministry toward the end of the year. After going through negotiations among the ministries and with politicians, the draft budget will be approved by the Cabinet at the end of the year. Japan’s financial situation is far from sustainable, and we must try to trim the taxpayers’ burden as much as possible by then.
In the past, politicians were often asked to explain to the public if large amounts of deficit-covering government bonds had to be issued. However, this tension between the public and politicians appears to have diminished in recent years. The budget is an investment for the future, but at the same time it can leave a heavy burden on future generations. Politicians and bureaucrats will be involved in the actual budget compilation process, but it should also be strictly scrutinized by the public.
IN FIVE EASY PIECES WITH TAKE 5